International Marketing Chapter 8

Which order of entry mode below is ordered from low to high risk? a. Licensing, direct exporting, joint ventures, wholly-owned subsidiaries b. Indirect exporting, licensing, joint ventures, wholly-owned subsidiaries. c. Indirect exporting, franchising, direct exporting, branch offices. d. Strategic alliances, branch offices, franchising, licensing.

B The entry mode classification that follows a general model of low to high control and risk is: indirect exporting, direct exporting, licensing, franchising, joint ventures, branch offices, wholly-owned subsidiaries. This may be found in the "Deciding on the International Entry Mode" section (8-3).

7. Which of the following is not likely to be used by an indirect exporter? a. Merchant middlemen c. Agents/brokers b. Trading companies d. Export management companies

ANS: A A company engaging in indirect exporting can use middlemen such as export management companies, trading companies, or agents/brokers to distribute its products overseas. Direct exporters select and monitor the different middlemen involved in the distribution process such as freight forwarders, shipping lines, insurers, merchant middlemen, and retailers. In indirect exporting the export management company (or the other options listed above) handles the middlemen for the exporter. This is found in the "Indirect Exporting" section (8-3a).

Which of the following is NOT an example of a manufacturing alliance a. Distribution alliance c. Engineering alliance b. Technological alliance d. Research and development alliance

ANS: A Manufacturing alliances range from contract manufacturing to technological, engineering, and research and development alliances.This is found in the "Strategic Alliances" section (8-3i).

25. The most important advantage that a wholly-owned subsidiary can provide is a. a relative control of all company operations in the target market. b. a decreased risk for the parent company. c. local marketing expertise. d. increased influence and lobbying power with the local government.

ANS: A The most important advantage that a wholly-owned subsidiary can provide is a relative control of all company operations in the target market. In particular, a subsidiary offers the company control over how to handle revenue and profits. A wholly-owned subsidiary actually increases the risk for the parent company. Wholly-owned subsidiaries may produce local marketing expertise and also provide some influence with the local government, but a joint venture can also do this and in many cases can better perform these functions. This may be found in the "Wholly-Owned Subsidiaries" section (8-3g).

24. Greenfielding refers to the process that occurs for a company when it a. is forced to comply with international environmental laws. b. develops its own subsidiary in another country. c. selects a new target market in a region. d. takes a "poison pill" to prevent a forced nationalization.

ANS: B Companies can avoid some of the disadvantages posed by partnering with other firms by settling up wholly-owned subsidiaries in the target markets. The company can develop its own subsidiary, referred to as greenfielding, which represents a costly proposition. Alternatively, it could purchase an existing company, through acquisitions or mergers.This may be found in the "Wholly-Owned Subsidiaries" section (8-3g).

35. Motorola Inc., and Singapore's Flextronics International's relationship is best characterized as a a. joint venture. c. marketing alliance. b. manufacturing alliance. d. distribution alliance.

ANS: B A typical example of a manufacturing alliance is that between the United States company Motorola and Singapore's Flextronics. In this alliance Singapore-based electronics manufacturer would make billions of dollars' worth of Motorola products. Flextronics has manufacturing contracts for infrastructure and cell phones, among others. This is found in the "Strategic Alliances" section (8-3i).

27. Which international marketing strategy carries the greatest level of risk? a. Joint ventures c. Branch offices b. Wholly-owned subsidiaries d. Licensing

ANS: B All forms of international marketing contain some level of risk. However, wholly-owned subsidiaries carry the greatest level of risk. A nationalization attempt on the part of the local government could leave the company with nothing but a tax write-off. This may be found in the "Wholly-Owned Subsidiaries" section (8-3g).

36. Opel's two-year contract to market its automobiles to AOL customers is an example of a a. franchise agreement c. distribution alliance b. marketing alliance d. joint venture

ANS: B Opel, the German subsidiary of GM signed a two-year contract to market its automobiles to AOL subscribers in Germany by informing users about Opel and directing them to the Opel web site. This is an example of a marketing alliance.

3. Which order of entry mode below is ordered from low to high control? a. Licensing, direct exporting, joint ventures, wholly-owned subsidiaries b. Indirect exporting, licensing, joint ventures, wholly-owned subsidiaries. c. Indirect exporting, franchising, direct exporting, branch offices. d. Strategic alliances, branch offices, franchising, licensing.

ANS: B The entry mode classification that follows a general model of low to high control and risk is: indirect exporting, direct exporting, licensing, franchising, joint ventures, branch offices, wholly-owned subsidiaries. This may be found in the "Deciding on the International Entry Mode" section (8-3).

4. Which entry mode below presents the lowest risk? a. Licensing, c. Franchising b. Indirect exporting d. Wholly-owned subsidiary

ANS: B The entry mode classification that follows a general model of low to high control and risk is: indirect exporting, direct exporting, licensing, franchising, joint ventures, branch offices, wholly-owned subsidiaries. This may be found in the "Deciding on the International Entry Mode" section (8-3).

Which entry mode below offers the lowest control? a. Licensing, c. Franchising b. Indirect exporting d. Wholly-owned subsidiary

ANS: B The entry mode classification that follows a general model of low to high control and risk is: indirect exporting, direct exporting, licensing, franchising, joint ventures, branch offices, wholly-owned subsidiaries. This may be found in the "Deciding on the International Entry Mode" section (8-3).

19. In a joint venture, what does the international firm usually not provide? a. Capital c. Expertise b. Infrastructure d. A trademark

ANS: B The international firm typically provides expertise, know-how, most of the capital, and the brand name reputation and a trademark that is internationally protected. The local partner provides the labor, the physical infrastructure, such as the factory and access tot he factory, local market expertise and relationships, as well as connections to government decision making bodies. This is found in the "Joint Ventures" section (8-3e). PTS: 1 DIF: Medium

12. Which of the following is most likely to be used by a firm engaged in direct exporting? a. Trading companies c. Export management companies b. Freight forwarders d. Agents/brokers

ANS: B Trading companies, freight forwarders, and agents/brokers are likely to be used by indirect exporters. These middlemen take care of the exporting function for the firm. On the other hand, direct exporters are actively engaged in the export process and are likely to use freight forwarders, shipping lines, insurers, merchant middlemen and retailers. This is found in the "Direct Exporting" section (8-3b).

21. Like licensing, joint venture partners can turn into competitors. But in the joint venture situation a. the competitor is rarely a threat. b. the competitor is not protected by the government. c. the international firm may be able to control the supply chain preventing access to equipment that the competitor needs. d. All of the above are true.

ANS: C Joint venture partners can turn into viable competitors that know the firm's operations and competitive strategies. In this case, the local partner will become a formidable competitor. Because many joint ventures are between international firms and state-owned companies, the new competitor is likely to be protected by the government. The international firm can fight against new competitors through controls and agreements with the supply chain and distributors that will prevent access to equipment and vital materials that the competitor requires. This is found in the "Joint Ventures" section (8-3e).

17. Regarding the advantages and disadvantages of franchising, the international marketer knows that a. in international markets, the franchisor experiences greater risk than if it opened its own company store. b. through franchising agreements, the franchisor reduces the possibility of competition. c. franchising is a method that allows for very rapid market penetration. d. All of the above are true.

ANS: C The franchisor experiences less risk, and a higher level of control of operations and offerings to the target market. Franchising is also a method that allows for very rapid market penetration. A disadvantage of franchising is that it can create future competitors, who know the ins and outs of the franchise's operations. This is found in the "Franchising" section (8-3d).

39. What region has been identified as the outsourcing hub and back-office of the Western world? a. Southeastern Europe c. Asia b. South America d. Africa

ANS: C Asia has emerged as the outsourcing hub and back-office of the Western world, and India, China, the Philippines, and Singapore. This is found in the "Strategic Alliances" section (8-3i).

20. Petrol Complex gas stations in Russia are an example of a. a franchise agreement with British Petroleum. b. a licensing agreement with British Petroleum. c. a joint venture with British Petroleum. d. a wholly-owned subsidiary of British Petroleum.

ANS: C British Petroleum established a joint venture in Russia, under the name of Petrol Complex, with ST, a powerful local partner with close ties to the Moscow city government. This is found in the "Joint Ventures" section (8-3e).

11. Cooperative exporting is also known as a. Piggybacking c. a and b b. Motherhenning d. None of the above

ANS: C Cooperative exporting is also known as "piggybacking" or "mother henning." With cooperative exporting, companies use the distribution system of exporters with established systems of selling abroad who agree to handle the export function of a noncompeting (but not necessarily unrelated) company on a contractual basis. Such companies are paid on commission or are charged a discount price for the product; they are larger companies with extensive experience in and knowledge of the target international market. This is found in the section entitled "Indirect Exporting" (8-3a).

8. Which of the following is not a form of cooperative exporting? a. Piggybacking b. Mother henning c. Leap frogging d. All of the above are forms of cooperative exporting.

ANS: C In indirect exporting, a company may use cooperative exporting to move its products. Cooperative exporting is also referred to as "piggybacking" or "mother henning." The exporter "piggybacks" on existing distribution systems to distribute its products in these cases. Leap frogging is not a term used in this text and does not refer to cooperative exporting. This is found in the "Indirect Exporting" section (8-3a).

28. Stihl, A German manufacturer of chainsaws, is selling products in Romania through a a. franchise agreement. c. branch office. b. licensee. d. wholly-owned subsidiary.

ANS: C Stihl has a branch office in Bucharest, Romania, that handles all company operations in the country. In addition to overseeing product sales, Stihl also ensures that servicing contracts are appropriately honored and that the representatives have adequate training. This is found in the "Branch Offices" section (8-3h).

29. Which statement regarding branch offices is false? a. Branch offices, like subsidiaries, offer a high level of control over operations. b. Branch offices are part of the international company (i.e., it is not a separate entity). c. Branch offices have a higher level of risk than subsidiaries. d. Branch offices of service providers typically engage in a full spectrum of activity.

ANS: C The primary difference between a subsidiary and a branch office is that subsidiaries are separate entities, while branch offices are entities that are part of the international company. Branch offices, like subsidiaries, also offer companies a high level of control over operations and profits in international markets. In terms of risk, however, the company has invested much less in the market that can be lost in a government takeover attempt, compared to a subsidiary. Thus, branch offices offer a lower level of risk than subsidiaries. Branch offices of service providers typically engage in a full spectrum of activity in the domain of their specialization. The text cites the Chase branch offices in Europe as an example of this. This is found in the "Branch Offices" section (8-3h).

18. Which statement is false regarding joint ventures? a. Joint ventures are a preferred international entry mode for emerging markets. b. When a joint venture has a state-owned enterprise as a partner it is assured instant local access. c. It is typical for joint ventures to take place between an international firm and a state-owned enterprise. d. Joint ventures are frequently discouraged by local governments because of the monopoly-like power that they wield.

ANS: D Because joint ventures lessen the risk for an international firm and because governments frequently encourage joint ventures in emerging markets, joint ventures are a preferred international entry mode for emerging markets. Joint ventures are encouraged by governments because they provide jobs, technology, and taxable profits for local economies. Furthermore, the joint-venture frequently occurs with a state-owned enterprise which tends to benefit the government and the government's officials. This is found in the "Joint Ventures" section (8-3e).

23. Which of the following is an assumption behind a wholly-owned subsidiary? a. The company can afford the costs involved in setting up a wholly-owned subsidiary. b. The company is willing to commit to the market in the long term. c. The local government allows foreign companies to set up wholly-owned subsidiaries. d. All of the above are assumptions behind a wholly-owned subsidiary.

ANS: D Companies can avoid some of the disadvantages posed by partnering with other firms by setting up wholly-owned subsidiaries in the target markets. The assumptions behind a wholly-owned subsidiary are that: the company can afford the costs involved in setting up a wholly-owned subsidiary (it is one of the most expensive ways of entering a market), the company is willing to commit to the market in the long term, and the local government allows foreign companies to set up wholly-owned subsidiaries on its territory (many governments require at least some local ownership). This may be found in the "Wholly-Owned Subsidiaries" section (8-3g).

Which of the following is true regarding Franchising? a. Franchising is a principal entry mode for the service industry. b. The franchisor provides the franchisee with advertising and sales promotion support. c. The franchisee receives the right to use the franchisor's brand name and all related trademarks. d. All of the above are true.

ANS: D Franchising is a principal entry mode for the service industry. It is the service industry's equivalent to licensing. The franchisor gives the franchisee the right to use its brand name and all related trademarks and its business know how, such as secret recipes. The franchisor also typically provides the franchisee with advertising and sales promotion support. The franchisee is responsible for paying the franchisor royalties. This is found in the "Franchising" section (8-3d).

Which statement is false regarding indirect exporting? a. Indirect exporting does not require market expertise. b. Indirect exporting does not require a long-term commitment. c. The company's risk is minimal in indirect exporting. d. Indirect exporting indicates that the firm is not committed to the market.

ANS: D Indirect exporting in the long term does not necessarily mean that the company is not committed to the market; it simply means either that the company does not have the resources for greater involvement, or that other markets are performing better and need more company resources. Using indirect exporting does not require market expertise, nor a long-term commitment to the international market. The company's risk is also minimal: at most, it can lose a product shipment. This is found in the "Indirect Exporting" section (8-3a).

32. Which of the following is considered to more of a short-term strategic alliance? a. Franchising c. Consortia b. Joint Ventures d. Manufacturing alliances

ANS: D Manufacturing alliances, marketing alliances, and distribution alliances tend to be more short-term in nature. On the other hand, franchise agreements, joint ventures, and consortia are alliances between companies attempting to reach joint corporate and market-related goals and tend to be more long-term in nature. This is found in the "Strategic Alliances" section (8-3i).

30. Which of the following is not considered to be a strategic alliance? a. Distribution alliances c. Marketing alliances b. Manufacturing alliances d. Intra-firm functional alliances

ANS: D Manufacturing, distribution, and marketing alliances are examples of strategic alliances between companies attempting to reach joint corporate and market-related goals. Intra-firm functional alliances are not examples of strategic alliances. This is found in the "Strategic Alliances" section (8-3i).

22. Why are most governments concerned with consortia? a. Consortia tend to exploit workers. b. Consortia require countries to give up some of their sovereignty. c. Consortia create unique taxation problems. d. Consortia create a monopoly effect.

ANS: D Most national governments (and trade organizations) are concerned with the monopoly effect that a consortium would create. The text does not indicate that consortia create any unique taxation issues or that they exploit workers worse than other forms of foreign direct investment. This is found in the "Consortia" section (8-3f).

37. Which of the following is true about outsourcing? a. The strategic use of outside resources to perform activities typically handled by internal staff b. It has been around for a long time c. Until now, it was restricted to technology d. All of the above are true about outsourcing

ANS: D Outsourcing is defined as the strategic use of outside resources to perform activities that are usually handled by internal staff and resources. Outsourcing has been around for a long time, but until the late 1990s, much of the activity was in the realm of technology. This is found in the "Strategic Alliances" section (8-3i).

40. Which of the following is true about outsourcing? a. The strategic use of outside resources to perform activities typically handled by internal staff b. It has been around for a long time c. Until now, it was restricted to technology d. All of the above are true about outsourcing

ANS: D Outsourcing is defined as the strategic use of outside resources to perform activities that are usually handled by internal staff and resources. Outsourcing offers opportunities for strategic alliances for the service industry—and even for manufacturing businesses using outside resources to perform activities normally handled by internal staff. Outsourcing has been around for a long time, but until the late 1990s, much of the activity was in the realm of technology. Today, it is present in many domains and prominent in providing activities usually handled by internal staff, such as customer service and billing. This is found in the "Strategic Alliances" section (8-3i).

38. What type of activities can be outsourced? a. Billing c. Technology b. Customer service d. All of the above can be outsourced

ANS: D Outsourcing offers opportunities for strategic alliances for the service industry—and even for manufacturing businesses using outside resources to perform activities normally handled by internal staff. Outsourcing has been around for a long time, but until the late 1990s, much of the activity was in the realm of technology. Today, it is present in many domains and prominent in providing activities usually handled by internal staff, such as customer service and billing. This is found in the "Strategic Alliances" section (8-3i).

Which entry mode below presents the highest control? a. Licensing, c. Franchising b. Indirect exporting d. Wholly-owned subsidiary

ANS: D The entry mode classification that follows a general model of low to high control and risk is: indirect exporting, direct exporting, licensing, franchising, joint ventures, branch offices, wholly-owned subsidiaries. This may be found in the "Deciding on the International Entry Mode" section (8-3).

31. Which of the following is an example of a strategic alliance? a. Manufacturing alliances c. Distribution alliances b. Marketing alliances d. All of the above

ANS: D The following are some examples of alliances: manufacturing alliances, marketing alliances, distribution alliances, and outsourcing. This is found in the "Strategic Alliances" section (8-3i).

The success of outsourcing strategic alliances depends on which of the following? a. Outsourcing must be done carefully, with clear objectives and expectations b. Outsourcing partners must be selected based on expertise and based on their cultural fit with the firm c. The outsourcing plan should provide clear expectations, requirements, and benefits d. The success of the alliance depends on all of the above.

ANS: D The success of outsourcing strategic alliances depends on the following: outsourcing must be done carefully, and with clear objectives and expectations; outsourcing partners must be selected based on expertise and on their cultural fit with the firm; the outsourcing firm must provide its partner with adequate training and skills that will help the partner adapt to other cultures; the outsourcing plan should provide clear expectations, requirements, and expected benefits during all phases of the outsourcing activity. This is found in the "Strategic Alliances" section (8-3i).

10. Which of the following is NOT true with regard to indirect exporting a. It does not require market expertise b. It does not require a long-term commitment c. It creates only minimal risk for the company d. All of the above are true about indirect exporting

ANS: D Using indirect exporting does not require market expertise, nor a long-term commitment to the international market. The company essentially sells its product to a distributor with little investment and without having to learn about the international market. The company's risk also is minimal; at most, it can lose a product shipment. This is found in the section entitled "Indirect Exporting" (8-3a).

26. Which of the following is an advantage of wholly-owned subsidiaries? a. They do not require market expertise. b. They do not require a long-term commitment. c. They create only minimal risk for the company. d. They provide the company with control over operations.

ANS: D a, b, and c are advantages of indirect exporting, not wholly-owned subsidiaries. This may be found in the "Wholly-Owned Subsidiaries" section (8-3g).

14. When a licensee cannot guarantee the product's quality it is preferable for the licensor to a. export to the market. c. license without the brand name. b. license with the brand name. d. create a joint venture.

ANS: C Licensing without the brand name is the recommended strategy when a licensee is unable to guarantee quality standards. In this way, the licensor receives the benefits of licensing without the risk of damaging its brand image. This may be found in the "Licensing" section (8-3c).

1. Which of the countries below has the highest hourly compensation costs for producing workers in manufacturing? a. Australia c. United States b. Italy d. Israel

C

13. Lands End is an example of a company that has expanded internationally through a. exporting. c. licensing. b. franchising. d. joint ventures.

ANS: A Catalog retailers and dot-com companies like Lands End made their first international incursions by exporting their products to consumers abroad. This is found in the "Direct Exporting" section (8-3b).

15. Which of the following is not true regarding licensing? a. Licensing is a principal entry mode for the service industry. b. Licensing permits the company access to closed markets. c. Licensing may produce a viable competitor in the licensee. d. All of the above are true.

ANS: A Franchising is a principal entry mode for the service industry. This may be found in the "Francising" section (8-3d).